Analyst: Apple could drop lawsuits, collect $10 per Android

updated 09:00 pm EST, Wed December 28, 2011

by MacNN Staff

Microsoft already receiving $5 per device

Making the case that Apple should abandon its proxy fight against Google and lawsuits against Android smartphone and tablet makers, a managing partner from a leading intellectual-property firm has toldBloomberg that the company could collect up to $10 per device royalties by negotiating licensing fees rather than use up resources in lawyers' fees and court costs to force opponents to work around Apple's patents.

In essence, 3LP Advisors LLC executive Keven Rivette argues that Apple should take a page from Microsoft's playbook and be willing to negotiate licensing agreements with handset makers and even Google. Microsoft is now believed to make around five dollars for every Android device sold, and the income has become a major source of revenue for the company, greatly surpassing the money it makes from its own Windows Phone 7 devices.

The crux of Rivette's case is that while it is likely that Apple is indeed being infringed upon, winning court cases and sales injunctions is incredibly costly, and rivals have the ability to work around the infringing patents once they get caught, which then devalues the monetary worth of Apple's patents. By licensing, Apple would reap huge amounts of money from the royalties, further increasing the cost to Google and its partners of maintaining the operating system, and also save money on legal bills and resolve the issues involved much more quickly than waiting for protracted court battles, counter-suits and ITC decisions to play out.

Apple has thus far not been willing to license its patents to companies it believes have gone and ahead and knowingly infringed upon them, viewing the issue has a matter of honor and intellectual property. Former CEO Steve Jobs referred to Android as a "stolen" operating system and was willing to "go thermonuclear" and spend "every penny" of Apple's cash to "right this wrong."

The courts thus far and the larger technological community appear to agree that Google specifically and handset makers generally have pilfered liberally from Apple's IP in the making of modern smartphones and tablets. Google itself has unintentionally admitted that it stole code from others and hoped that short-term benefits would offset any long-term liabilities.

The question illustrates the difference of approach between Apple and most other technology companies. So far, the executive team seem willing to continue Jobs' fight for justice, but most other companies would take shareholder interest more into consideration, which would favor Rivette's argument that licensing would enhance and prolong the value of the patents as well as be the most financially prudent course of action.

Apple, by contrast, has enormous cash reserves and little need to manufacture revenue through licensing. While it can easily afford to keep fighting in court, there is a risk that competitors will continue to work around any Apple patents, thus devaluing Apple's IP over time.

The approach could eventually set up a showdown between Apple's management and shareholders, though there is not yet any clear indication that the company will indefinitely continue the current approach. The Apple co-founder famously met with Eric Schmidt of Google and told him that he was not interested in getting Google to pay Apple for Android, but rather that he wanted Google to come up with its own ideas rather than copy Apple's technology.

So far, Apple's efforts in court have appeared to follow the same mantra: force opponents to re-design devices first, seeking sales bans only when they refuse to stop the infringement. Apple has thus far avoided any direct confrontation with Google, preferring to sue hardware makers. Rivette compared Apple's approach to building a dam to stop a river by putting some rocks in the stream. "The stream is going to find a way around," he said. "Wouldn't it be better to direct where the water goes?"

The ongoing court cases may also be damaging Apple's reputation as customers perceive the matter as an attempt by Apple to limit competition, though Jobs and Apple have tended to view the issue not as stifling rivals but as stopping the theft of Apple's innovations, something the company was less effective at doing in the 90s with Microsoft. In some ways, the current struggle between Apple and Google can be seen as a re-do of the company's various fights with Microsoft and may contribute to the company's unwillingness to "reward" those who "borrow" its IP.

The recent victory by Apple against HTC may be seen as a case in point: Apple was victorious in getting the ITC to agree that HTC was infringing on Apple's "data detector" patents, but the company announced only a day after the decision that it was developing new devices that either omitted the feature or worked around the patent using a different methodology. Given HTC's rapid turnover of models, the decision will ultimately have little impact on HTC and no real financial gain for Apple, though the win does strengthen its case against others.

Apple may see licensing as a surrender that opens the door to other companies to steal Apple's ideas, knowing they will eventually have to license the technology but potentially reaping years of profits in the meantime. Ironically, Apple's rivals in the tablet field have largely disappeared too quickly and done too poorly using alleged infringing technology for Apple to even attempt to sue (or license) to recover damages from any infringements.

The company has not seen the same problem in the smartphone arena, however, as Google has found an eager partner in the handset carriers who get to customize and otherwise alter Android to their liking in exchange for strong support. [viaBloomberg]

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TOTAL_COMMENTS Comments

Maybe it is time to change tack. As brilliant as he certainly was, his ego could get in the way sometimes, and this is perhaps an example of that. I think what this guy is saying makes a lot of sense: collect royalties so that Android eventually becomes too expensive for most manufacturers to use, and in the mean time reap the profits. It's win win - except for Google. :-)

I am inclined to agree with Steve about how much theft has gone on of Apple's IP in both hardware design and software. It would be nice if Google would own up and acknowledge their (pretty obvious) guilt on both the Java thing and borrowing from Apple.

That said, I do find this guy's argument pretty convincing -- matter of honour or not, Apple might be guilty of cutting off its nose to spite its face here a bit. Also, subverting Google might ultimately be more fun (and effective) than taking a chance on winning in court.

Every Android phone sold is an iOS phone sale lost. Apple makes more than $10 per phone they sell, and once you add in the App store revenue it probably exceeds $100 per phone - perhaps more per tablet - then it's clear that being able to gain $10 per phone is a loss for Apple. Anyhow, why should they give away ($10 is a giveaway price) for free the fruits of years of research they spent billions on just so some cheap copyshop in Seoul or Guangzhou can undercut them on price?

I totally agree with SwissMac. So many analysts are quick to say that Apple should do this or that and none of them have any success in business. Apple is not in the business of licensing and hopefully never will be. It is about the user experience. Licensees can't give the same quality products and experience and take away Apple's market. Don't keep publishing such drivel.

I'd rather Apple bust Google's chops and make them change whatever they've IP they've pilfered. I'd rather Apple put more pressure on slowing down Android device sales. That would be much more enjoyable a victory. It probably won't happen, though. Google is going to get away with whatever wrong they did because the courts don't really care.

The Oracle Java infringement lawsuit looks like an easy win for Larry Ellison & Company. The only question is the damages. Will Oracle seek an injunction and sales ban? And / or a lump sum? And / or a licensing fee per device? It's been said that Oracle could easily extract $15 per Android device from the manufacturers.

So let's see. $5 to Microsoft plus $10 to Apple plus $15 to Oracle = $30 per Android device in licensing fees. That's an enormous amount of money to pay for a "free" OS. Great news for Apple *and* Microsoft.

$10 is probably a low ball figure - I suspect Apple could collect much more. Add that to Oracle and Microsoft's take, and we could be looking at up to $50 per phone. That would kill Android for third parties. I agree with the people above that what Apple gets selling iPhones would be a lot more than they could collect in Android royalties, but given the slowness and unpredictability of the legal system, licensing may be the most efficient way to kill Android anyway.

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